This suggests the sector has not yet reached its peak and raises the question of what existing or additional moves could be made to nurture growth.
So this week, Mortgage Solutions is asking: What needs to change for the equity release market for it to fulfill the huge potential predicted over the coming years?
Daniel Bailey, mortgage adviser at Middleton Finance
Education is key for me. As an industry we need to promote and educate the consumer and other professions a lot more and highlight the positives and the flexibility of a lifetime mortgage.
Fixed interest rates, the right to remain in your property for life or until you need long term care, the right to move to another property, no negative equity guarantee, flexible payment options. These are just a number of flexible features that many are not aware of.
Lifetime mortgage products are continuing to evolve year-on-year with new lenders entering the market offering new features and innovation.
When I speak to financial advisers, solicitors, and accountants many are surprised at how flexible a lifetime mortgage is and what is achievable. We can work alongside other professions and demonstrate what is achievable for their clients through a lifetime mortgage.
Many borrowers I speak to do not realise that a lifetime mortgage is an option to them. They have heard the horror stories in the press and have ruled it out as an option.
A lifetime mortgage maybe a solution for many, helping them in their retirement, helping their children get on the property ladder, repaying debts and helping them with the increasing pressure on the cost of living which is set to grow this year.
I have a responsibility to educate the consumer and promote equity release in a more positive light. A lifetime mortgage is not the right product for everyone but for the right borrower it can be very good solution that may have been discounted.
Andy Wilson, director of Andy Wilson FS
I believe that the biggest obstacle to the more rapid growth of the industry is the negative perception of products which is rife amongst the public. Indeed, this may also apply to some old school financial advisers.
This is reinforced by the fact that many older plans, taken before regulation at high interest rates, are still outstanding. The debts on these plans are compounding rapidly, as most did not allow any payments towards the interest charges to be made.
Modern plans are heavily regulated, safe, transparent and honest, but it is difficult to convey this to some people who may have seen their relative’s lifetime mortgage grow five-fold in just 20 years. Add to this the difficulties in refinancing old lifetime mortgages due to significant early repayment charges, and the industry will continue to suffer a poor reputation until these inflexible plans eventually expire, usually when their owners do.
How many people will not buy a Skoda car because of their bad reputation 30 years ago? And yet they now consistently win awards for build quality. Our industry is remarkably similar.
Raising lender and adviser standards is high on everyone’s agenda, but this will only improve the client outcomes and will not in itself automatically grow the market. Indeed, raising standards will actually see more advisers actively talking potential clients out of equity release altogether where it is not the best solution.
I do not see issues of distribution hampering the market too much – there is nearly always a good lending option for most situations. The market is growing, and new lenders are entering, so there is clearly an appetite to provide the finance on what is a pretty secure asset.
I can see us entering a period of rapid growth, with lending perhaps doubling to £10bn annually within five years.
Jon Milne, mortgage and insurance adviser at Trufe Money
The customers that I speak to, when I mention equity release, they still have the perception from years ago where it had a really bad reputation, and I do think that reputation remains to this day.
As the years have gone on, this has lessened as more people use equity release and positive stories emerged. But a lot of people we speak to are in their late 50s, 60s, possibly early 70s and they would have had parents who went through the old equity release process and had a bad experience with it.
If clients have a reasonable income, they prefer to go for a retirement interest-only (RIO) mortgage instead as they like the idea of it.
With equity release, I have to explain it in a different way. I don’t typically say ‘equity release’, I will say ‘lifetime mortgage’ instead. That seems to make clients more comfortable. I think people hear ‘equity release’ and think ‘home reversion plan’.
There are still quite a lot of people who hear equity release and think ‘no’ immediately, without even wanting to listen to the product’s features or potential benefits.
Funding is an important thing to help drive growth too. The providers in the sector aren’t necessarily huge companies, they wouldn’t be put in the same bracket as Halifax or Nationwide for example.
But we could see some mainstream lenders dip their toes in this area, like Nationwide which offers a RIO mortgage. Other banks may start to follow then naturally expand into lifetime mortgages, but that will take a lot of time because the high street banks are cautious when it comes to innovation.
Advertising is important as well, to get it into the national conscience as much as possible. Because you don’t really see the bigger equity providers advertised anywhere. Obviously, that comes with a cost but if they could, it would help raise awareness and drive growth.
